Cyril Lawrence Spencer and Another v The Secretary of State for Defence
| Jurisdiction | England & Wales |
| Judge | Mr Justice Vos |
| Judgment Date | 02 February 2012 |
| Neutral Citation | [2012] EWHC 120 (Ch) |
| Docket Number | APPEAL NUMBER 5 OF 2011 |
| Court | Chancery Division |
| Date | 02 February 2012 |
[2012] EWHC 120 (Ch)
Mr Justice Vos
APPEAL NUMBER 5 OF 2011
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Ms Caroline Hutton (instructed by Bircham Dyson Bell) for the Secretary of State for Defence
Mr Anthony Tanney (instructed by Clarke Wilmott) for the Respondents
Hearing dates: 16 th and 17 th January 2012
Introduction
This appeal concerns the rent payable in respect of the tenancies of some 257 acres of land at Choulston Farm, Figheldean, Netheravon in Wiltshire (the "new holding"). In the broadest outline, Messrs Cyril Lawrence Spencer and David Leslie Spencer, two brothers then farming in partnership (the "Tenants") held an annual tenancy from the Secretary of State for Defence (the "Landlord") of some 256 acres of the land at Choulston Farm (the "original holding") for many years (the "original tenancy"). In 1998, the parties agreed that an extra area of just over 1 acre (the "additional land") should be added to the original tenancy. Thereafter, the parties became engaged upon a rent arbitration under section 12 of the Agricultural Holdings Act 1986 (the "AHA") before a Mr Stephen R Burman FRICS, FAAV, MCIArb ("Mr Burman") as to the rent payable under the original tenancy. Ultimately, the additional land was purportedly added to the original tenancy by a written Memorandum executed by the parties on 28 th February 2000 (the "Memorandum"), stating the proportionately increased rent payable to be £16,333 per annum.
Unknown to the parties, however, when they signed up to the Memorandum, and as a matter of established law, the execution of the Memorandum adding the additional land effected an automatic surrender of the original tenancy, and the re-grant of a new tenancy of the larger acreage comprising the new holding.
It is common ground between the parties that the effect of the Memorandum was that the rent payable under the original tenancy should be £16,333 per annum or such sum as Mr Burman might determine in the rent arbitration. The single issue raised by the appeal is whether the consequence of executing the Memorandum, and the surrender and re-grant that it effected in law, is that the rent payable under the new tenancy is either (i) the stated sum of £16,333 per annum, or (ii) the stated sum of £16,333 per annum or such other sum as Mr Burman might determine in the rent arbitration.
Mr Recorder Stewart Patterson sitting in the Salisbury County Court on 28 th June 2011 resolved the issue by determining, in answer to the question raised in a special case stated from the arbitrator, Mr P.R. Faulkner FRICS FAAV ("Mr Faulkner"), that the rent agreed for the new tenancy in respect of the holding on and after 28 th February 2000 was £16,333 per annum. The Landlord now appeals that decision on essentially three bases:—
i) First, that by operation of law, the effect of the re-grant of the new tenancy is that it is on the same terms as the original tenancy, including the outcome of the rent arbitration before Mr Burman, so that the rent payable under the new tenancy is that eventually determined by Mr Burman in 2004 in the sum of £27,700 per annum.
ii) Secondly, that as a matter of pure construction, and in order to avoid absurdity, the Memorandum should be construed as meaning that the rent payable under the new tenancy should be £16,333 per annum or such sum as Mr Burman might determine in the rent arbitration.
iii) Thirdly, that a term should be implied into the Memorandum to the effect that the rent payable under the new tenancy should be £16,333 per annum or such sum as Mr Burman might determine in the rent arbitration.
It is also common ground between the parties that they neither expected nor intended that the effect of the Memorandum should be that a new tenancy would be granted. Consequently, both parties assumed and expected at the time of the Memorandum that the rent determined by Mr Burman would be payable in respect of the tenancy of the new holding after 28 th February 2000.
Against this background, Ms Caroline Hutton, counsel for the Landlord, has submitted, not surprisingly, that it would produce an unexpected, unjust and unreasonable result if the Tenants were to obtain the benefit of the lower rent of £16,333 that neither party expected to apply. Ms Hutton argues with great force that the parties were actively engaged in the rent arbitration when they executed the Memorandum. It would be nothing short of absurd if there were no legal mechanism to correct what was an obvious mistake in the Memorandum.
Mr Anthony Tanney, counsel for the Tenants, on the other hand, essentially submits that, where the parties contract on a false assumption, but neither party intends the contract to say anything different from what it says, the law cannot improve their contract, however reasonable that might seem. The law must, he submits, give effect to what the parties meant by the words they used, not what they would have meant if they had known something they did not. There are, says Mr Tanney in effect, a number of compartmentalised contractual concepts, including construction and implied terms on the one hand, and mistake on the other hand, and they cannot be mixed up or applied beyond their proper limits simply to do justice in an isolated case. Ultimately, he submitted that, whether as a matter of construction or implication, the parties cannot be said to have "intended" something they knew nothing about, so that none of the relevant tests laid down by the authorities are satisfied.
Before seeking to deal with these competing positions, I will set out, as briefly as I can, the history of the relationships between these parties and the extensive litigation in which they have already engaged.
Chronological background
On 12 th May 1987, the Landlord granted the Tenants an annual tenancy of the original holding from 29 th September 1983, the expiry of a previous lease, at a rent of £12,690 per annum.
On 1 st July 1997, the Landlord wrote to the Tenants saying that it was prepared to include an additional 1.156 acres in the tenancy agreement. The letter said that that could be achieved by "using a simple endorsement to [the] tenancy agreement", and that this would not affect the Tenants' security of tenure and that "this will necessitate an increase in rent of £73.59 per annum based on the current level of rent".
On 5 th July 1997, the Tenants accepted the Landlord's proposal.
On 21 st September 1998, the Tenants served a notice on the Landlord to review the rent payable under the original tenancy
On 24 th September 1998, the Tenants served a notice under section 12 of the AHA demanding a reference to arbitration of the "question of what rent shall be payable in respect of the [holding known as Choulston Farm, Netheravon, Wiltshire] as from the next ensuing day on which the tenancy thereof could be determined by Notice to Quit given at the date of this demand", that date being 29 th September 1999. It can be noted that this notice is not specific as to the inclusion or exclusion of the additional land, but it seems clear to me that it was referring only to the rent payable under the original tenancy in respect of the original holding, because that was the only tenancy that was then in formal existence, and could be determined by Notice to Quit as referred to in the notice.
From 29 th September 1999 to date, the Tenants have been paying rent at the rate of £16,333 per annum. The Landlord contends that they should have been paying at the rate of £27,700 per annum, a difference of £11,367 per annum for 12 years and 4 months, totalling £140,190 or thereabouts. The Tenants accept that rent was payable at the rate of £27,700 per annum from 29 th September 1999 to 28 th February 2000.
On 17 th November 1999, Mr Burman was appointed by the Royal Institution of Chartered Surveyors as the arbitrator to review the rent under the original tenancy with effect from 29 th September 1999.
In December 1999, the Tenants put in their statement of case to Mr Burman seeking a reduction in rent payable under the original tenancy to £14,625 per annum.
On 28 th February 2000, the parties entered into the Memorandum, which was a 6 th endorsement to the original tenancy agreement, providing that, from 29 th September 1998, the additional land "would be added to the premises" and that the rent would be increased in consequence from £16,250 to £16,333 per annum. The area was in fact 0.530 hectares or 1.31 acres so the increase in rent was rather larger than mentioned in the 1 st July 1997 letter. The precise terms of the Memorandum were as follows:—
"THIS MEMORANDUM made the Twentyeighth day of February 2000 between [the Landlord] and [the Tenants] is SUPPLEMENTAL to the within written agreement (hereinafter called "the Principal Agreement") dated the Twelfth day of May 1987 and the five memoranda endorsed thereon
Whereas the [Landlord] has from the date mentioned hereunder added to the premises ALL THAT piece of land … containing .530 hectares or thereabouts …
IT IS AGREED THAT with effect from Twenty-ninth day of September 1998
(i) the within written clear yearly rent of £16,250 … shall in consequence of the above mentioned addition be increased by £83.00 … thereby causing the said rent to be £16,333.00 …
(ii) the First Schedule to the Principal Agreement shall be amended as follows: …
(iii) the revised area of the premises shall be deemed to...
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